New Home Starts And Industrial Output Weak Again

Posted by Tom Lindmark on February 18th, 2009

Lots of stuff going on today, so, time permitting, I hope to post quite a bit. First, let’s dispense with the two big economic reports.

Industrial output was down 1.8% in January and capacity utilization fell to 72% from 73.3% in December. No sub-sector reported a growth in output save for utilities who boosted energy production in response to very cold weather. All in all, an extremely weak report.

New residential construction fell 16.8% in January to an annual rate of 466,000 units. That number includes multi-family units. If you strip those out, new single family home construction fell 12% from December to an annual rate of 347,000 units. Building permits also fell 4.8% in January and indicate an annual pace of 521,000 units. The inventory stood at a 9.3 month supply versus 11.2 in December.

Here are a couple of economists reactions to the housing numbers:

It’s time to redo the old Monty Python routine.
Economy: “Bring out your dead!”
Homebuilders: “We’re not dead yet.”
Economy: “Well you will be soon, I don’t see what the difference is.”
… Part of this broad weakness is likely the result of “superseasonality” that tends to occur during periods of extreme positive or negative trends. Traditional seasonal adjustment factors fail to account for builders’ tendency to “give up” more easily when exogenous factors, such as the weather, threaten activity. – Guy LeBas, Janney Montgomery Scott

[S]everal factors that will extend the downturn in housing starts have come into play. First, the household formation rate has slowed, as homeowners losing their jobs or homes to foreclosure have moved in with family. Second, rising foreclosure rates have driven down the prices of existing homes, pricing new homes out of the market. Third, the credit crunch has made it difficult for builders with viable projects to obtain financing. Finally, the severity of the downturn and the stock market crash has reduced demand for long-lasting goods such as automobiles and new first and second homes. – Patrick Newport, IHS Global Insight

Frankly, the light at the end of the tunnel looks awfully dim to me but maybe that’s a good thing. I do take some heart in the decline in inventories but the turn is still hard to discern.